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Transcript of The Airpocalypse › wp-content › uploads › 2018 › 11 › Flex_LN… · Largest LNG shipping...
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The Airpocalypse
Kepler Cheuvreux, 2 November 2018
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• THIS PRESENTATION (THE “PRESENTATION”) HAS BEEN PRODUCED BY FLEX LNG LTD. ("FLEX LNG" OR "THE COMPANY”), SOLELY FOR PRESENTATION PURPOSES
AND DOES NOT PURPORTE TO GIVE A COMPLETE DESCRIPTION OF THE COMPANY, ITS BUSINESS OR ANY OTHER MATTER DESCRIBED HEREIN.
• THE PRESENTATION DOES NOT CONSTITUTE AN OFFER, INVITATION OR SOLICITATION OF AN OFFER TO BUY, SUBSCRIBE OR SELL ANY SECURTIEIS. THIS
PRESENTATION IS STRICTLY CONFIDENTIAL AND MAY NOT BE REPRODUCED OR REDISTRIBUTED, IN WHOLE OR IN PART, TO ANY OTHER PERSON.
• NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY OR COMPLETENESS OF ANY INFORMATION INCLUDED HEREIN IS GIVEN BY
THE COMPANY, AND THAT NOTHING CONTAINED IN THIS PRESENTATION IS OR CAN BE RELIED UPON AS A PROMISE OR REPRESENTATION BY THE COMPANY, WHO
DISCLAIM ALL AND ANY LIABILITY, WHETHER ARISING IN TORT OR CONTRACT OR OTHERWISE.
• THE PRESENTATION SPEAKS AS OF THE DATE SET OUT ON ITS FRONT PAGE. THE COMPANY DOES NOT INTEND TO, OR WILL ASSUME ANY OBLIGATION TO, UPDATE
THE PRESENTATION OR ANY OF THE INFORMATION INCLUDED HEREIN.
• THE CONTENTS OF THE PRESENTATION ARE NOT TO BE CONSTRUED AS FINANCIAL, LEGAL, BUSINESS, INVESTMENT, TAX OR OTHER PROFESSIONAL ADVICE. EACH
RECIPIENT SHOULD CONSULT WITH ITS OWN PROFESSIONAL ADVISORS FOR ANY SUCH MATTER AND ADVICE.
• AN INVESTMENT IN THE COMPANY INVOLVES RISK, AND SEVERAL FACTORS COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE
COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS THAT MAY BE EXPRESSED OR IMPLIED BY
STATEMENTS AND INFORMATION IN THIS PRESENTATION.
• THE PRESENTATION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS RELATING TO THE BUSINESS, FINANCIAL PERFORMANCE AND RESULTS OF THE
COMPANY AND/OR THE INDUSTRY IN WHICH IT OPERATES, SOMETIMES IDENTIFIED BY THE WORDS "BELIEVES”, "EXPECTS”, “INTENDS”, “PLANS”, “ESTIMATES” AND
SIMILAR EXPRESSIONS. THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PRESENTATION, INCLUDING ASSUMPTIONS, OPINIONS AND VIEWS OF THE
COMPANY OR CITED FROM THIRD PARTY SOURCES, ARE SOLELY OPINIONS AND FORECASTS WHICH ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER
FACTORS THAT MAY CAUSE ACTUAL EVENTS TO DIFFER MATERIALLY FROM ANY ANTICIPATED DEVELOPMENT. THE COMPANY DOES NOT PROVIDE ANY
ASSURANCE THAT THE ASSUMPTIONS UNDERLYING SUCH FORWARD-LOOKING STATEMENTS ARE FREE FROM ERRORS NOR DOES THE COMPANY ACCEPT ANY
RESPONSIBILITY FOR THE FUTURE ACCURACY OF THE OPINIONS EXPRESSED IN THE PRESENTATION OR THE ACTUAL OCCURRENCE OF THE FORECASTED
DEVELOPMENTS. NO OBLIGATION IS ASSUMED TO UPDATE ANY FORWARD-LOOKING STATEMENTS OR TO CONFORM THESE FORWARD-LOOKING STATEMENTS TO
ACTUAL RESULTS.
• THIS PRESENTATION IS SUBJECT TO NORWEGIAN LAW, AND ANY DISPUTE ARISING IN RESPECT OF THIS PRESENTATION IS SUBJECT TO THE EXCLUSIVE
JURISDICTION OF THE NORWEGIAN COURTS.
Disclaimer
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Air pollution: a glocal problem
• 9 out of 10 people breathe air containing high levels of pollutants.
• 7 million pre-mature deaths every year caused by outdoor and household air pollution.
Source: WHO/FT
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• The number of “very unhealthy” days or worse (when levels of dangerous particles called PM2.5 crossed 200)
rose to 84 in New Delhi in 2017 from 66 in 2015
• In Beijing they dropped to 20 days from around 43 over the same period. PM 2.5 down 54% Q4-17 vs Q4-16
• World top ten most polluted cities (PM 2.5) are all in India
Policy matters
Air quality: New Dehli Air quality: Beijing
Source: AirVisual
Note: Data shows an air quality index (AQI) value derived from raw PM 2.5 readings.
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China’s environmental Kuznets moment
Source: BCA, PEW Research, Energy Policy vol 62 2013
• GDP (PPP) per capita in China at about $17k, but at European levels in Beijing, Shanghai, Tianjin (>$30k)
• Economy reached an turning point at their Environmental Kuznet Curve (EKC) where air and water pollution are
number 2 and 3 of top concerns
• Half of public according to Pew support lower growth as trade-off for lower air pollution
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Switching to LNG is as much health policy as energy and/or
environmental policy
• In South Asia, air pollution larger health risk than tobacco, cancer, water sanitation and on par with dietary risk
• If the air pollution improves from China's level to the American EPA standard level, that means that would improve
everyone's education by around one year
Source: Texas A&M University, NPR and Science News
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19th century: coal, 20th century: oil, 21th century: gas (and LNG is
where the growth happens)
Source: BP
Fuel share Gas sources LNG production
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Outlook for LNG shipping
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Market for seaborne LNG transport is maturing
From point-to-point utility business to global tradeable commodity business
• 1960s to mid 2000s
• Traditional liner model (P2P)
• Back2back contracts 20yr+
• Steam vessels (≈180tpd)
• Leverage: 80-100%
• Utility business
• Libor spread yield
LNG 1.0 LNG 2.0 LNG 3.0
• Mid-2000s – about now
• Portfolio players
• Term contracts (7-15yr)
• DFDE/TFDE vessels (≈135tpd)
• Leverage: 70-80%
• MLP business
• MLP yield
• The way of the future
• Commoditization of LNG
• Short and medium term contracts
• Two-stroke low-speed (≈100tpd)
• Leverage: 50-75%
• Capital market business
• ROCE
2010: ≈200MMtpa 2000: ≈100MMtpa 2020: ≈400MMtpa
Yearly liquefaction capacity:
+100% +100%
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Unique fleet comprising 13 modern 5th generation LNGCs
ME-GI X-DF ME-GI with Full
Reliquefaction System
ME-GI with Partial
Reliquefaction System
High Pressure Low pressure
Ranger
Rainbow
Endeavour
Enterprise
Constellation
Courageous
Resolute
Reliance
Freedom
Aurora
Amber
Vigilant
Volunteer
ME-GI and X-DF vessels are the most fuel-efficient and technically advanced LNGCs
ME-GI and X-DF vessels are the most fuel-efficient and technically advanced LNGCs
5x NBs acquired
• Three 174,000 CBM LNGC newbuildings at DSME with ME-GI engines and Full Reliquefaction System bringing BOR to 0.035%
• Two additional X-DF LNGC with Mark III Cargo Containment System with BOR of 0.085%
• Favourable slots mid-2020 to early 2021
Source: Company
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0
10
20
30
40
50
60
70
# of vessels
2002 1999 2010 1997 2018 2004 <1990 1991 1992 2014 1993 1994 1995 1996 2000 1998 2001 2003 2005 2006 2007 2008 2009 2011 2012 2013 2015 2016 2017 2019 2020 2021
17 | 2017 17 | 2017
0
0.2
0.4
0.6
0.8
1
ST 138k TFDE 160k X-DF 174k
Ship fuel consumption comparison
ME-GI and X-DF vessels with significant fuel cost savings
LNGC existing fleet and orderbook by propulsion type
Comparison of LNG Ship Types on UTC Basis*
| 11 2018
LNG shipping unit transportation costs (U.S. Gulf – China round trip)
(1) Assuming speed of 16.5 knots (~74 days round trip), term charter rate of USD 70k/day, boil off gas priced at USD 5 / mmbtu, port cost of USD 250k,
and allowance for port fees and loadring discharge time. Source: Poten & Partners
Notes:
ME-GI / X-DF Other DFDE/TFDE ST
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
1st Generation 145k ST 155k ST 160-165k DFDE/TFDE 174k ME-GI
Charter Hire Port Charges Boil Off FuelUSD / mmbtu
Source: Company
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Largest LNG shipping companies(1) FLEX will be the leading operator of 5 th gen LNG vessels(2)
FLEX to become the leading owner of 5th generation LNGCs
0 5 10 15 20 25 30 35 40 45
Mitsui OSK
NYK
Qatar Gas
Teekay
Maran Gas Maritime
MISC
BW Gas
FLEX
Nigeria LNG
Golar LNG
GasLog
Kawasaki Kisen Kaisha
Knutsen OAS
Hoegh & Co
SK Shipping
Shell-Royal
GasLog Partners
Abu Dhabi National Oil Co
Chevron Corp
BG Group
Golar LNG Partners
SOVCOMFLOT
Petronas
Korea Line
Dynagas LNG Partners
China Shipping LNG
BP
ICBC
Sonatrach
Exmar
China LNG Shipping
Cardiff Marine
Small conventional Conventional Large conventional Super large
(1) Based on commercial ownership of the vessels (source: Braemar ACM); (2) Source: Clarksons SIN
8
10 10 10
7 7 7
6 6
5
5
Cardiff Marine
FLEX Teekay LNG
Partners
GasLog Nippon Yusen
Maran Mitsui O.S.K.
BW Gas BP Knutsen OAS
13
Vessels acquired Existing fleet (incl. NBs)
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Early phase of recovery of LNGC market
• Spot rate improved before winter season 2017/18
• Rates have rebounded after glut of available tonnage depressed rates coming out of the winter early 2018
• Arbitrage opportunities due to volatile spread between European and Asian prices
• Unusual strong European gas prices have limited re-export, normalized European gas price will tighten LNGC market
further
Estimated monthly average LNGC spot rates
Source: SSY
Natural Gas Prices by Region
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• Modern slow-speed two-stroke tonnage above USD 100k mark
• Vessel availability significantly reduced as charterers absorbed tonnage to secure capacity for the winter season
And the market is sold out
Available spot vessels in different basins
Source: Arctic Securities, Affinity and Fernleys
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LNGC market has become more liquid
Number of spot fixtures (less than 3 months)
Number of semi-term fixtures (3mth to 5yrs)
Source: Clarksons LNG
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Strong growth ahead for LNG
Source:McKinsey
• High future demand growth is expected as natural gas increase it’s market share in the energy matrix
• All top five growth countries located in Asia
• China’s increased demand was about half of the added volume in 2017 and continued strong growth as
aim is to increase natural gas from 6% to 10% of energy use by 2020
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Glut of LNG comming to the market
Source: Fearnleys
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Few available modern vessels despite recent ordering
• About 90 orders for delivery in the period until 2021
• A deficit of about 40 vessels given start-up of about 96.5MMtpa in period 2018-2022
• Increased sailing distances supportive of LNGC demand
Order book for large LNG carriers Average sailing distances (laden)
Source: Fearnleys and DNB
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The LNG shipping market is expected to gradually tighten from the end of 2018, with Australia, the U.S. and Russia
being the driving forces for soaking up tonnage
Well positioned to benefit from a tightening LNG shipping market
Delivery date existing newbuilds Delivery date vessels newly acquired newbuilds
FLEX is one of the few Owners with uncommitted tonnage being delivered in 2018-2021
-70
-60
-50
-40
-30
-20
-10
0
10
20
30
2015 2016 2017 2018 2019 2020 2021 2022
LN
GC
Ov
ers
up
ply
(S
ho
rtfa
ll)
Source: Fearnleys
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US-China trade conflict and impact for LNG trade
China’s quarterly LNG import by country # of US cargos to China and US LNG market share in China
China’s LNG demand and existing LNG contracts
“China is building a new coal-fired
power plant every week and is set to
surpass America as the biggest source
of greenhouse gases within a year. If
the world is to contain its carbon
emissions, America must not only clean
up its own act but also help China to
green its economic growth.”
Economist, 17 May 2007
Source: Bloomberg New Energy Finance and Economist
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Summary
Right Ships
Right Time
Right Market
Right Owner
Four LNGCs on the water and nineLNGCs under construction, all
fitted with 5th generation propulsion (two-stroke low-speed
engines) providing substantial fuel savings and larger parcel size
The market have re-balanced and is now in early phase of
recovery with higher charter rates and utilization as well as
increased interest for longer term contracts
LNGC market have very strong long-term fundamentals due to
increased demand for LNG, emissions focus and
commoditization of LNG resulting in more trading
The principal shareholder has evidenced unrivaled performance
in building strong shipping companies and is supportive of Flex
LNG in relation to credit and S&P transactions
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Q&A